What a California seller can defer with a 1031
If you sell California investment property without an exchange, California can tax the gain at up to 13.3%, on top of federal tax. A properly structured 1031 exchange into Nevada property defers both. What California does not do is forget about the gain. It keeps a claim on it, tracked through an annual filing, until you eventually sell in a taxable transaction.
Here's what changes, and what doesn't, when California equity moves to Las Vegas.
| Without a 1031 (illustration) | Amount |
|---|---|
| Sale price | $3,000,000 |
| Adjusted basis | $1,000,000 |
| Gain | $2,000,000 |
| Federal long-term capital gains (20%)* | $400,000 |
| Net Investment Income Tax (3.8%) | $76,000 |
| California (top rate 13.3%) | $266,000 |
| Estimated total | ~$742,000, before depreciation recapture |
*Simplified. Depreciation recapture is taxed federally at up to 25%, selling costs reduce gain, and brackets vary. Run your own numbers below.
California to Nevada 1031: the five things to know
1. California taxes California property even after you move
California taxes nonresidents on income from California sources, and gain on California real estate is California-source income. Moving to Nevada before you sell does not by itself remove California's claim on that gain.
2. A 1031 into Nevada defers California tax too
California generally follows federal 1031 treatment for real property. If the exchange qualifies federally, California tax on the gain is deferred as well, even though the replacement is in Nevada.
3. California tracks the deferred gain: FTB Form 3840
If you exchange California property for property outside California, you generally must file FTB Form 3840 for the year of the exchange and every year after, as long as you hold the out-of-state property. Details on our California clawback guide.
4. The "clawback" when you sell
If you later sell the Nevada property in a taxable sale, California expects its share of the gain that was deferred from the California sale, even if you've lived in Nevada for years. Gain that builds up after the exchange on the Nevada property is generally a different story for a Nevada resident.
5. Withholding at the California closing
California generally requires withholding on California real estate sales (often 3 1/3% of the sales price) unless an exemption applies. A qualifying 1031 exchange is one of the exemptions, claimed on FTB Form 593. Make sure your escrow officer and QI handle this before closing.
California seller tax calculator
Change the numbers to match your property. The total is what a qualifying exchange could defer, not eliminate.
How California investors use Las Vegas replacement property
- Buying in Las Vegas while you're still in California. We tour by video, walk properties for you, and coordinate inspections so you can identify with confidence from out of state.
- Stepping down from management. Many California sellers trade a demanding older building for newer Las Vegas rentals, net-lease property, or a DST.
- Planning a future move. Some clients exchange into Las Vegas rentals now and plan to relocate later. Converting an exchange property to a residence has its own holding-period rules; talk to your CPA first. Our sister brand Nevada Makes Sense helps with the move itself.
California to Nevada 1031 FAQ
Tell us where you are in the sale. A licensed Nevada broker responds within one business day, usually the same day. We coordinate with your QI, CPA, and attorney; we don't replace them.